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Exam 8: Internal Control and Cash

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Question 31

Multiple Choice

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Match each item to a bank statement adjustment, a company books adjustment, or either. -Interest revenue earned by the note above

A) Bank statement adjustment
B) Company books adjustment
C) Either

D) A) and B)
E) A) and C)

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Question 32

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A compensating balance occurs when a bank may require a company to maintain a maximum cash balance.

A) True
B) False

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Question 33

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The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.

Internal control does not consist of policies and procedures that

The bank statement for Farmer Co. indicates a balance of $7,735 on June 30. After the journals for June were posted, the cash account had a balance of $4,098. Prepare a bank reconciliation on the basis of the following reconciling items:? (a)Cash sales of $742 were erroneously recorded in the cash receipts journal as $724. (b)Deposits in transit not recorded by bank, $425. (c)Bank debit memo for service charges, $35. (d)Bank credit memo for note collected by bank, $2,475 including $75 interest. (e)Bank debit memo for $256 NSF (not sufficient funds) check from Janice Smith, a customer. (f)Checks outstanding, $1,860.

Journalize the entries to record the following: ?Mar. 1 Established a petty cash fund of $300. 31 The amount of cash in the petty cash fund is now $64. The fund is replenished based on the following receipts: office supplies, $137; selling expenses, $112.Record any discrepancy in the cash short and over account.?Journal $\begin{array} { | c | c | c | c | c | } \hline \text { Date } & \text { Description } & \begin{array} { c } \text { Post. } \\\text { Ref. }\end{array} & \text { Debit } & \text { Credit } \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline\end{array}$

There are three internal control objectives and they are to safeguard the company's reputation, ensure accurate financial reports, and ensure compliance with applicable laws.

The bank statement for Jeffrey Co. indicates a balance of $8,785 on October 31. After the journals for October had been posted, the cash account had a balance of $8,998.? (a)Cash sales of $945 had been erroneously recorded in the cash receipts journal as $495. (b)Deposits in transit not recorded by bank, $778. (c)Bank debit memo for service charges, $40. (d)Bank credit memo for note collected by bank, $23,985 plus $885 interest. (e)Bank debit memo for $756 NSF (not sufficient funds) check from Calin Sams, a customer. (f)Checks outstanding, $1,860. Record the appropriate journal entries that would be necessary for Jeffrey Co.

If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as "Other Income" on the income statement.

The following data were gathered to use in reconciling the bank account of Savannah Company:? $\begin{array} { | l | r | } \hline \text { Balance per bank } & \$ 16,750 \\\hline \text { Balance per company records } & 16,125 \\\hline \text { Bank service charges } & 80 \\\hline \text { Deposit in transit } & 2,195 \\\hline \text { NSF check } & 950 \\\hline \text { Outstanding checks } & 3,850 \\\hline\end{array}$ What is the adjusted balance on the bank reconciliation?

Which of the following would be subtracted from the balance per bank on a bank reconciliation?

A bank reconciliation should be prepared

A $135 petty cash fund has cash of $18 and receipts of $120. The journal entry to replenish the account would include a

Which of the following would be added to the balance per books on a bank reconciliation?

The amount of the outstanding checks is included on the bank reconciliation as a (n)

A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is required in the company's accounts?

Using the following information, prepare a bank reconciliation for Miller Co. for August 31: (a)The bank statement balance is $4,690. (b)The cash account balance is $5,080. (c)Outstanding checks amounted to $715. (d)Deposits in transit are $1,020. (e)The bank service charge is $40. (f)A check for $72 for supplies was recorded as $27 in the ledger.

Sarbanes-Oxley requires sole proprietorships to maintain strong and effective internal controls and thus deter fraud and prevent misleading financial statements.

The following data are from the Muffin Shoppe for the past four years.?? $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\textbf { Year Ending December 31}\\\begin{array} { | l | c | c | c | c | } \hline & \text { Year 1 } & \text { Year } 2 & \text { Year } 3 & \text { Year 4 } \\\hline \text { Cash and cash equivalents } & \$ 38,788 & \$ 65,216 & \$ 70,691 & \$ 78,274 \\\hline \text { Cash flow from operations } & ( 39,264 ) & ( 50,580 ) & ( 45,768 ) & ( 57,744 ) \\\hline\end{array}$ Calculate the following: $~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~{ \text { Year Ending December 31 } } \\\begin{array} { | l | l | l | l | c | } \hline & \text { Year 1 } & \text { Year 2 } & \text { Year 3 } & \text { Year 4 } \\\hline \begin{array} { l } \text { Monthly cash } \\\text { expenses }\end{array} & & & \\\hline \begin{array} { l } \text { Ratio of cash to } \\\text { monthly cash } \\\text { expenses }\end{array} & & & & \\\hline\end{array}$

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